An insured has a duty to cooperate with the defence counsel that has been appointed by its insurer. The Ontario Court of Appeal recently reconfirmed that this duty to cooperate is not subject to a standard of perfection. Instead, to establish a breach of duty, an insurer must show that the insured's breach was substantial and not merely inconsequential or trifling. The court will always consider the facts and consequences of the alleged conduct to determine whether a breach can be established.
In Ruddell v Gore Mutual Insurance Company,(1) an insurer argued that its insured's failure to keep it updated on her current address was a substantial breach of the duty to cooperate. On a summary judgment motion, a judge of the Ontario Superior Court disagreed and ruled that – in these circumstances – the insured's conduct had not been a substantial failure to cooperate. This was upheld on appeal.
The circumstances in Ruddell are peculiar. As cases involving the duty to cooperate are adjudicated on a case-by-case basis, a full appreciation of the facts is important to understand the decisions of both the lower court and the court of appeal.
Gore Mutual Insurance Company was defending its insured, Gayle Bass. Bass owned a vehicle that had been involved in a single car accident. At the time of the accident, the vehicle was being driven by her son, Alan Stewart. Stewart had allegedly been driving too fast down an unfamiliar road. When the road ended abruptly, he had taken a sharp turn, slid on gravel and rolled the vehicle. Because of the accident, Stewart's passenger, Michael Ruddell, sued both Bass and Stewart for personal injuries.
As most Ontarians with auto insurance, Bass's relationship with Gore was subject to the Statutory Conditions – Automobile Insurance, O Reg 777/93, a regulation made under the Ontarian Insurance Act. Statutory Condition 5(3) codifies a general principle of insurance: an insured's duty to cooperate with their insurer in the defence of an action. The condition reads:
The insured shall, whenever requested by the insurer, aid in securing information and evidence and the attendance of any witness and shall co-operate with the insurer, except in a pecuniary way, in the defence of any action or proceeding or in the prosecution of any appeal.
When first contacted by Gore, Bass fully complied with her obligations under the statute. In Gore's first letter to Bass, it asked that she "keep [Gore] advised of any change of address". Bass provided a statement and particulars for their file, including her current address and information about her past addresses. She also provided all of the information that she had about the accident.
The court of appeal and the lower court were careful to note that the information provided at this stage was effectively exhaustive. Bass had not been involved in the accident and was merely the owner of the vehicle. She had little else to provide other than particulars of her ownership, herself and her son. Stewart, on the other hand, was in the best position to provide information about the case and would likely have been a witness at trial.
After cooperating fully at this early stage, Gore and Bass fell out of contact for some time.
The action proceeded and pleadings were closed. About one year into the litigation, as discovery was approaching, Gore's counsel tried to reconnect with Bass. Gore's counsel tried the various phone numbers and addresses provided by Bass without success. Efforts to contact Bass continued without success for several years. During this period, Gore was also unable to locate Stewart. He had what the court described as a 'peripatetic' lifestyle. He worked as a rigger in the entertainment industry – colloquially, he was a 'roadie' who travelled with stage productions and set up equipment rigs.
In 2013, three years into the litigation, Gore's counsel removed themselves from the record and Bass and Stewart were noted in default. Gore was then added as a statutory third party. The litigation continued and in 2016 it came to light that Ruddell's insurer, Allstate Insurance Company of Canada, had located Bass two years earlier through a private investigator. With new contact information, Gore connected with Bass in 2016. At this time, Bass once again cooperated fully with all of Gore's requests. The case was later settled and a judgment of more than C$300,000 was ordered.
Following judgment, Gore refused to indemnify its insured claiming that Bass had breached her policy and Statutory Condition 5(3) by failing to cooperate. Gore alleged that she had a positive obligation to keep counsel up to date on her current address. On this basis, Gore argued that Allstate was therefore responsible for the judgment, as Bass was without insurance.
The motion judge found that Bass had not breached her policy and had cooperated at all times when she had been involved. She had provided all that had been requested in both 2010, when she had first been contacted, and 2016 when she had later been found. The motion judge held that during her period of absence, there had been no evidence that she "was somehow evading process or trying to hide from those responsible in litigating the lawsuit",(2) nor was there evidence that she had been "working in concert with her son, encouraged him not to cooperate, or failed to assist Gore in locating [Alan]".(3) To the contrary, the motion judge believed that Bass had acted reasonably. Ultimately, he found that she had "little information to give that could assist in their defence of the action beyond assisting Gore in finding [Alan]. When asked to do so, she did provide that information".(4)
In light of these findings, the motion judge concluded that there had been no breach of duty.
On appeal, the court agreed with the motion judge. In doing so, it recognised the long-established principles set out in its 1996 decision in Canadian Newspapers Co v Kansa General Insurance Co. In that decision, Justice Weiler quoted this foundational passage from the New Brunswick Court of Appeal:
The duty of the insured to co-operate with the insurer, being a condition precedent to his right to recover, requires him to assist willingly and to the best of his judgment and ability. If in this connection a breach occurs in some material respect the insurer is entitled even to refuse to defend an action. Lack of co-operation, however, must be substantial. No inconsequential or trifling breach of such obligation should serve to exonerate the insurer from his contractual liabilities under the policy. The breach of the duty of co-operation in this case was substantial because it affected the insurer's assessment of the risks of the litigation.(5) (Emphasis added.)
In other words, to find a breach of the duty to cooperate, the court will look for substantial conduct. It noted that a breach of this duty differs from, for example, a breach of a more straightforward obligation like the 90-day deadline to provide a declaration about a loss set out in Statutory Condition 6(1)(c). There, compliance with the condition is straightforward, either the declaration is provided in time or not. If it is not, it is a breach (subject to relief from forfeiture).
With the duty to cooperate, there is no bright line. In this case, the court of appeal confirms that whether a substantial breach is established will depend on the particular facts and circumstances of each case. While Bass did not strictly cooperate with the requested obligation to keep her address up to date, the result of that breach was inconsequential. She had little information to assist the defence. All she could have done was help Gore to locate her son; however, given her son's nomadic lifestyle, she was not in any better position than Gore to do so. Further, it is noteworthy that the lower court criticised Gore's efforts to locate Bass.
This case serves as a strong reminder from the court of appeal that a breach of the duty to cooperate must be substantial. Ruddell shows that, in practice, without real consequences arising from the insured's conduct, there can be no substantial breach of the duty to cooperate.
Despite missing six years out of a seven-year litigation, Bass's absence had no substantial impact on Gore's ability to defend the action.
While such an extended absence sounds significant, in the circumstances, the effect was minimal. Bass had only a minor role in the litigation. The court acknowledged that the only assistance Bass might have provided during the six-year absence would have been to assist Gore in locating her son. Thus, while Stewart's conduct might strictly have been a failure to meet Bass's insurer's initial request regarding her address, her conduct had no consequential effect on the defence.
While this decision breaks no new ground in the law, insurers and insureds alike can look to Ruddell as a yardstick to measure whether an insured's conduct is a substantial breach of the duty to cooperate.
Endnotes
(1) Ruddell v Gore Mutual Insurance Company, 2019 ONCA 328.
(2) 2018 ONSC 3932 at Paragraph 8.
(5) Canadian Newspapers Co v Kansa General Insurance Co (1996), 30 OR (3d) 257 (CA).
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